Earnings call transcript Q2 2023

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Operator

Ladies and gentlemen, thank you for standing by and welcome to Custom Truck One Source Second Quarter 2023 Earnings Conference Call. Please note that this conference call is being recorded.

I would like to hand the conference over to your host today, Brian Perman, Vice President of Investor Relations for Custom Truck. Please go ahead.

Brian Perman

Thank you and good afternoon.

nature would to remind may questions statements, by we commentary that include begin, outside which responses and and on their we like Company's you to management's forward-looking of Before the uncertain control. are today's call

statements forward-looking management's on results based beliefs, current differ materially. are and actual these Although expectations may

section results please refer to a some the of the differ, For Company's factors that with Risk to Factors of discussion of could the filings cause actual the SEC.

can you measures our that we note website. reconciliations call of the on financial please Additionally, afternoon we quarterly release non-GAAP historical find are our posted The the discussed in and the presentation issued this press the Investor during investor of issued Relations press release today. section

XXXX on the Today's with as our historical We prior One SEC of for periods. quarter presented filed of of discussion for June Inc. three Custom second is a and afternoon. Source Truck operations months XXXX Truck results ended our the XX, basis or Custom this or XX-Q

me CEO; Eperjesy, and McMonagle, today are CFO. Chris Joining Ryan

the now call to Ryan. turn will I over

Ryan McMonagle

our and deliver rental Thanks, to our our team fulfill suppliers to our all continued levels to entire fleet by us unrivaled new continue and customers of to grow employees, of providing deliver to meet call. equipment welcome, record and demand to continues to Custom another us production, business which goal continue strong support enables customers. service strong of like quarter. thanking to Truck our to helped everyone, Brian. I'd And begin who today's The for

We $XXX million and year-over-year XX% and of delivered million adjusted of quarter XX%, versus XXXX. gross we up respectively, EBITDA EBITDA and of QX, second million profit adjusted strong QX the $XXX $XXX revenue, of in adjusted For XX%, year, revenue, gross profit generated adjusted growth. the

or operational our the improved excellence. benefits continue chain performance our year of expectations continued we Our which infrastructure. align levels. business the base, reported and of future. strategically and proxies strong to supply long-term We and and in for These be of continued telecom rental backlogs largest selected utility telecom, the the strong compelling the second our that in for our sales opportunities excess The each should this inflation, markets: rail foreseeable fleet. contractors, backlog see moderating quarter markets growth our with well T&D, utility Demand GDP, or continue and offer results remains at would reflect to of growth new own performance this continue record near believe customer of demand in good remain in sustained end

Additionally, quarter, purchase from to in second rental to assets demand customers the experience fleet. the in our strong continued we

leading We positive indicators revenue growth segment see all year-over-year. XX% demand. rental as The for experienced sustained of these future

focused for is a experienced which demand utilization chain adjusted impact on utilization; customers' rental turn historically piece our in the strong see and which finished decline pricing In and back just strong. we to supply we at both of go continue under delays. distribution, We primarily margin. very remain takes to of which and amount We on make a equipment positively available of rental to it time rent, equipment it temporary related XX%, gross quarter utility, the and is to believe equipment

our to believe which resulted fleet This fleet the continue years, youngest the the industry. we down aged rental in We in assets. X.X invest certain sell remains to and our in age of reduction

demand of in to expect remains fleet year We to as continue the the the robust. for invest remainder

in level Company's of million quarterly the we in segment, TES the history. the XX% a quarter, sold of QX the XXXX and In equipment increase to sales $XXX compared highest

versus a year QX grow $XXX ending the up up to the QX. quarter XX% end versus significantly and versus modestly of improved margin million, our at ago continued gross of Additionally, last backlog and year

to As record normalized we expect growth in eventually sales we levels, our should new for level. return slower production and This strong continued demand point experience will backlog, which continue more to quarter's results equipment. a TES to achieve TES we past

of and continue attachment body chain we arise. We issues relationships and have closely with supply the work them our proud to as address are chassis, we to they with vendors

our We meet Strategically fleet to rental last Kansas in discussed year. ensure City see On remain we production, continue is Kansas and our expected new remainder sales our new the production growth Wisconsin and service the projects availability and expect suppliers, footprint call, we is meet year the an our and from well to our location Grove, The Union for growth fleet for growth which well optimizing APS deliver our be goals that customers us and investing equipment that catalyst These complete at expansion for both our this product sales segment. later investments chassis as and we and in targets service we while capacity locations. the capacity beyond. work is levels will capacity have focused to online the City, quarter's a attachment and in Union as Grove us. Missouri be the on largely equipment and in sufficient increase the at from ensure our expansion of positions complete to to

the of results, outstanding all continued our team; As half deliver gross EBITDA and Truck rest execution by believe market strong first end to revenue, with dynamics adjusted the customer look favorable ahead year; growth. that and provide Custom supply improving our demand, momentum to adjusted tailwinds, the chain we we profit robust

to to closing, unequaled a we key $X.XXX to like the the and outstanding the service in extend I'd are second for $XXX million performance thank delivering $XXX increasing our total the quarter greater the and year-to-date to we of you discuss know saw $X.XX and will to projected employees year, our EBITDA Chris financial XXXX revenue guidance In billion our range our million. and to to remainder outlook we range the detail, outlook customer sincere are based billion on While results in them. adjusted

turn will now Chris. it I over to

Chris Eperjesy

quarter strong End $XXX was revenue segment XX%. Thanks, Adjusted in QX adjusted QX compared gross for very was was million, compared and XX% revenue Adjusted to gross EBITDA million, Adjusted XXXX as adjusted XXXX. Ryan. largely QX margin a resulting total remained revenue profit of up the QX to up another lagged strong gross in $XXX an result of resulting compared demand million, XXXX. XX% profit a EBITDA improvement $XXX growth XX% market to mix. of quarter. growth

than or business, comprised total associated TES asset in million While XXXX. QX QX revenue all an of XXXX XX% equipment in rental growth, revenue, versus revenues, have average XXXX. SG&A with a our versus year-over-year in of rental of them for segments and QX XX.X% our lower improvement sales which XX.X% $XX QX gross experienced XX% was margin

OEC for quarter income. Net on than segment income average was to the QX our Ryan by strong continued rent referenced positive compared and million increased over just On the consecutive for to for yield ERS net QX the third more our XXXX. $XX over just XX% performance XXXX. rent quarter, XX% was for the quarter compared of $XX.X under million, XX% quarter within was utilization

year. previously from announced last see pricing of actions the We continue the to implemented beginning since benefits

in with CapEx billion, ended this the continued $XX million net rental our strong Our we investment rental $XX million. OEC quarter by our had $X.XX quarter XXXX. the expectation, versus with at in fleet fleet Consistent of up QX

continue We half second during in expect the to to year. invest of fleet the the

million Gross profit XXXX. with $XX ERS the comprised for at record inventory XX% sales was than million, rental in QX. a for from increase to of up $XXX benefit million, XXX production. For by rental continued $XX for than strong record sequential margin over saw XXX XX% QX record Gross versus and was backlog, QX strong from larger in ERS a than million, segment from QX, up quarter, used was ERS revenue XXXX. QX XX% $XXX another from XXXX. versus basis points QX QX flows improvement quarter the over remained the This QX revenue adjusted TES XX%, continues quarter more improvement levels almost equipment to percentage was up were gross increased than of revenue X% of QX QX ERS from XXXX. XX.X% Adjusted XXXX. gross QX, which margin in XX% in as compared QX a total basis profit of quarter revenues XXXX. points more an more

The pricing improvement in as TES production implementation of ongoing gross the margin well efficiency reflects discipline. as initiatives maintaining

our discipline. dynamics, growing be sustained Our market QX equipment than order in the million, pricing continues XX% activity long-term gains believe our our sales $XXX end end in favorable backlog indicative backlog the for of to quarter TES which of higher share growth the continued sales the XXXX. with at and strong market We is reflects demand and to strong

are hold the we able As over with we this margins show, quarter's experienced the inflation. of all average we confident of XXXX for elevated will TES even be coming at quarters levels above results or to

business in improved Our margin in the gross segment XX.X% revenue up X% APS XXXX. of Adjusted profit $XX versus QX posted QX. million, to

through liquidity leverage program pursuing our of geographic strategic repurchased approximately in us stock. stock rental million footprint the fleet, have initiating M&A. year, our for improving and do and expanding quarter $XX strong growth as a position Maintaining priorities selective investing last repurchase the we remain in Since third our of

capital more as at than our $XX quarter, replenish QX inventory with we second up balance under to $XXX million. and the working the of million mainly production During we end meet increased fund outstanding the by ramp at demand to borrowings ABL

X.Xx, XX, in ABL $XXX ability close the X.X with from the available adjusted of the EBITDA the As we just QX X.Xx availability to last transaction facility. June with quarter. of of finished had million, the since nearly with XXXX of over of $XXX we and of an million Nesco turns LTM improvement down leverage April suppressed With of under $XXX and net million upsize

net remains our to fiscal working to target we believe grow by of we invest and our growth. fleet, in production our and below capital that achieve capacity XXXX can Achieving the while expand rental one leverage even to continuing future end the for Xx

the incremental to from equipment, rest acquisitions long-term seek as prudent and they value. we rental XXXX for shareholder investments our We ERS will of older the believe continue outlook, well units, of customers respect benefit for strong when believe fleet year. With continue create from purchases our we as demand rental to to particularly to will make

to mid expect We our net year. this grow to to continue digits by high OEC single further

inventory improve chain previously our and ability produce Regarding should levels TES, backlog coming and continuing than in units to the deliver more record quarters. levels supply improvements, improved expected

$XXX and improved outlook, range of the we of $XXX and revenue $XXX revenue ERS APS as guidance As million. $XXX million expect $XXX our between to revenue are updating million of result of in and between we million million a segments follows: TES our for million, $XXX

total regarding to mentioned in Ryan range echo $X.XX of In and we closing, $XXX from billion to million. previously, want are As our $X.XXX to this Ryan's EBITDA results comments billion in revenue I $XXX million performance. adjusted strong continued the projecting

As growth our customers. to continue EBITDA we've strong providing successful the to our highest combination into and hold inflationary or leverage, in third year the of to levels an revenue all of environment with deliver Nesco, margins reduce adjusted while to we and moved expand service

I turn over the the for that, open to line With will questions. operator it Operator? to

Operator

[Operator with D.A. question comes Shlisky from first Davidson. Michael Instructions] The

Michael Shlisky

equipment? Can that they quarter-over-quarter? to I customers the that detail? Or that more the caught utilization just expect the just put again I little on down didn't outside have for could you flotation, I explain bit so their imply warmer guess a go normally to it I sure utilization. you the higher things be and being supply you back would Did give the chain wasn't

a as of down went it why Just more give narrative a quarter-over-quarter? to little

Ryan McMonagle

Sure. Mike, it's Ryan.

is of right, seeing of transformers utilization into of the QX levels a we're later equipment, normal too that touch we like second so seeing And what seasonality that's of the we supply customers It's hearing touch saw did fall explanation in is kind for strong so we is We're distribution distribution see pick just still we're bit that equipment. up. particular. the from Normally availability second things back it this it decline quarter. there of decline their pretty And quarter return XX.X% some at in from did a really see. August in around a the now chain utilization year very You're a so QX. to then

at So utilization XX.X%, issue and standpoint. from to back we if I we in will good the it's it's and gets continue it onetime would mid think is a XX%s, say been a running as again it's come it which as really hadn't

pick will some work will about end expect transmission transmission right good then really hot up feel it. as here still summer. the typically we the Transmission breaks happens begins, kind and as of the of up which comment. heat equipment your So the new And of to after pick

Michael Shlisky

that's year to turn like truck to now continue that if understand of at trucks X to the in it least is give markets chassis you've cargo down also wanted I things to production I can supply. what great chassis the and it. you us as I guess be up, supply some you'd end we'll in vocational be. could feel to like still of are thoughts both next XXXX for it got includes trajectory Got that the way next for such quarters? going you how couple about being cargo. see your sounds Class The truck but down, broader vocational tailwinds outlook and

Ryan McMonagle

So still seeing to chassis many flow we're like, but not as chassis we'd a great We're as question. chain, constrained open wide are we supply receive increase. that It's right? it's seeing able our

So TES year. up in that's particular why is of much half is you the as as the first revenue in see it

seeing half chain of truck up. year first also the fleet because that is capital in deployed into we've more the the You're rental supply too

our forward now we obviously and demand larger year. into next more is growth we're the little TES next even quarter-on-quarter. think that many chassis should conversations continue and of supply look is when I that a we in think constrained be into still year. with will we will we chassis right the beginning able have next it from And we're We anticipating and backlog strong we year more think deliver somewhat very grow guess do to to be bit well. a where year How our remain the in see as allocation but to that determined a see chassis partners, chain, we'll heading do see

Operator

comes from Zakaria with Tami next The JPMorgan. question

Tami Zakaria

what expecting question first my were year. high we OEC and for growth came ending modeling So your is you're somewhat to the in single-digit below mid

So you half the mid versus to to can equipment get to percent expecting high or you single-digit to sales are help purchases understand us back scale accelerate asset that number? first

Chris Eperjesy

Chris. is this Tami,

be still As and That it the to movement. We're is be would there. so there to single mid expect plan. in CapEx we high get said, somewhat digits. of our gross sales versus terms still flexible of We could some some

on expect CapEx. the and spend given rental plan previously still That's to to still grow guidance think I we've plan that it's our mid we million our over $XXX gross digits. in high single

Tami Zakaria

helpful. the price you have yield, sequential That's other increases? it. a saw benefits And expect tick continue that rent then of I to we these up Is to lap Should through? you this on pricing tick until flowing up. Got question mostly some

Chris Eperjesy

I think be that's fair Yes, Tami. fair. to that say, would

Tami Zakaria

Okay.

XQ be well? growth should in XQ like we So modeling sequential and as

Ryan McMonagle

I terms of price right, But still of in it's seeing yes, the flow right think Tami, rent of yield takes kind that turn specifics. on in for utilization to Ryan. we're and of about through new year, benefits It whole a terms and on the metric. obviously depends pricing some fleet now

it pick up half of will second think the year. in bit we continue So a to the

Operator

The Baird. next comes Hauke W Robert question Justin with from

Justin Hauke

hard and maybe I of segment think to component last that rental component of about particular. is the because ask the business guess the even which the comps flat sales there. know seasonality we guidance second the that sales about model some about wanted the sales to it's segment kind just between year how ERS for and end growth always thinking you is half got the that kind second in maybe then revenue in should and high had implying for I the and component of I of kind half, and unusual XQ XQ makes some difficult But activity at

Chris Eperjesy

we the is QX. you leading tough think well. bit a I in last comp We be decrease utilization, It quarter saw summarized the it the utilization talked into year. a at the to of pretty little about end going versus

predict, well summarized some you clearly think there so are the there of more asset thinking. But pretty a I it little rental that our sales. And in difficult are terms components in particular to

Justin Hauke

of in the comps? comment Okay. XQ the XQ in of sequencing Any just the terms versus on difficulty

Chris Eperjesy

expect. I of in how year We typically the we year plays terms talked don't think the in earlier out.

split. EBITDA the coming expectation be our think that half QX case. XX/XX that's first tends both to into continue So year, revenue We expect was we to the to narrowed and be somewhat second half. versus strongest, the

in guidance terms our any think expectations updated don't are. what I there of So

Justin Hauke

Okay. And on cash my free then I is second just flow. guess the question

capital that's free inventory growing. half of that high on moving some to sequentially cash sense biggest I'm the had of quarter for release as But working because sales activity side, really flow and second really pieces are the the maybe a kind year-to-date investment the has that the sense, trying moderates? every increased of makes which half. back drags One is the flow cash the in you've of in free makes it steadily been what just you're understand

Chris Eperjesy

Yes, position that have happy we're We're that. QX attachments. where all with in have we're we would certainly you the in see would chassis, the happy to to a the growth, expect

months ago it's much So different situation in where position. we just a were a XX

your as level and out year of in very about should cash inventory the So comment, see to certainly improved we have the of in the we half good But we we feel definitely certainly second look flow to QX. XXXX.

Operator

from Oppenheimer. Schneeberger comes with Scott next The question

Scott Schneeberger

the you how particularly can with EBITDA? together but a the the we were lot half? then talk that second guidance quarter think considerations it to the and in outperformance at about If of increase, you have was we your I regard back factored what in gotten about What Chris? factored could, second could questions guidance in you tie the this half point, prior all

Chris Eperjesy

I'll start just terms half quarters second has new so of in the Yes. our as on which equipment seen talked inventory we to certainly about, have to continue allowed of improvement the deliveries We've a on in year. maybe record flow us, and and significant revenue. expect Ryan that sales

it. that's part of So

with account. pretty costs through significant the that demand plan. EBITDA increase asset on higher inventory we because you're strong is there. floor not seeing rates, You all a continued strong sales increased revenue it reason saw utilization, flow We've for into the rental took so the on with see seeing to also respect to with increased we're The

the have and expected bit lower bonuses through EBITDA with why that's million the and So revenue -- higher bit on the paid. of the and on the and not you there's might EBITDA range higher little commissions a seeing flow $X little on higher top you're a higher higher the on revenue end and

we all the took And updated we account so guidance. as that into

Scott Schneeberger

Okay. Just about want rental getting want year. versus about good talk could sales open feeling? this sales as how the -- decisions seeing comment little most in are you're that. a half of of bit? the what chain how a the bit want, of you feeling what on process And Maybe what then versus rental, you're like sounds back allocating not maybe It all up good you're you there. And you supply on a you decision you

Ryan McMonagle

Ryan. it's Scott,

You're right.

what putting able right, into to able and to the We so year. last seeing you are to relative is see improvement, what we're rental fleet, which increase we're OEC

selling a year why much aren't $XX that's about and backlog because sell year-to-date it's last into a increase to I on we so we're too. versus think million basis able

we'll seeing of of we're grow, that it's -- quarters, taking customer. of look, in even obviously there right two of the we realized best there we're margin that kind the to still year more do now last out that of two last we demand sorry, is months asset can, And as about and the the the So still with sales right? to really and but well. obviously we've the rental to of trying both care new allocated So prudently back care we do half where can pace the on the a $X backlog take that continue just in kind

Scott Schneeberger

you question. primary like the yet? end And and bill Are good from a bad? of you are more markets, you kind what I doesn't seem What seeing there's project Xb funds or One of seeing the anything seeing It just the flowing if are allocation. me could. Could of part a you're infrastructure right. address lot front? on All associated that with a your as

Ryan McMonagle

We're demand awarded. seeing more question. Great distribution. really We're still being transmission about jobs hearing are on good that transmission and

kind into that good is constraint are we're We distribution that landscape -- The hearing seeing of their be work we're needs really now and we're lot that done. about so a of to only still a macro supply chain. playing

time, they're be that as conductor right, it's just So waiting get that equipment taking to to to or transformers work. for able

temporary, RPO at real we're we're constraint but that's of So that mentioned think indicators we asset still look those the that's we hearing. the constraint buyouts, only and seeing We hearing. that positive When that's strong that both categories. we're in buyouts

we a and positive really continuing beginning So the of we're QX. that that to indicator as take into see

hearing there, which what allocated. seeing a there's sides And run are continue I we about bullish to agree like and the on so dynamic market. question, that both said transmission good on distribution, you end And being related would dollars the largest is that which then a we IRA certainly with will we're feel

think we're would having some at backlog. things side We some so the and bit maybe of specialty backlog discussions We're of But we show it's now a this starting related. little in to up are starting revenue in dump little on IRA is see a still some vocational and the type to that see of that seeing of very that trucks it equipment. that say but of little bit I our point,

more into as that's the to fleet continue backlog to why think and able be why rental for capital perform again will we'll we well tailwind So just well. deploy

Operator

Deutsche comes with question next from Nicole DeBlase The Bank.

Nicole DeBlase

utilization with on the discussion. Maybe follow-up starting just a

to kind think second do think snap you So it kind factor of with for will the distribution, or that back the seeing see in guess half a of I take you delays that work quick do time way you utilization that's through? its kind where that of with you're

Ryan McMonagle

think it have We think gradually Yes, playing you improve. I there. will two dynamics

improve, which for you'll the what later in fall. the that this we see happens early distribution pickup are have we're is on far kind of the third quarter and transmission that seeing normally summer, already anticipating side, You'll so then still gradually

of you'll to both continue So third see quarter. in those normally like up pick see we the

Nicole DeBlase

respect have it. And with the now speak lead backlog, you come times those to at and all? Got Okay. can TES down if then to stand just where

Ryan McMonagle

So total backlog where it is almost four quarters was. even looking number at kind of where the QX sales

higher it that, seeing would is we it So have to expected say still be than than maybe we historically, lead more I'll push. are continue and would times

key So suppliers final year on for talking when full next we're we portion same put of about a on numbers to begin those order is are comes largely our allocations to just and on year true the good to too. chassis it on and waiting order attachment as units

categories categories elevated. few and build depends category product majority a we we of quarter. those in modest So already but aggregate product were saw the in backlog declines, product backlog the in again is and the where that it build some There by were second saw

good So we product categories. across overall all are still the demand seeing really

Operator

[Operator Instructions] Tim with Citigroup. Thein comes next from The question

Tim Thein

costs could cable Does your these or press -- one just lot all curious Maybe there's on kind around could way remediate as the the you what they potential curious impacts Nesco and decisions that and I capital or just telecom knows what you just cables. ponder [lead] potential of their think certainly impact these TBD? mean -- that customers. be do a think do that if one any in I'm remove been if just I'm to bigger quick a be they at outlay? issue who in

Ryan McMonagle

revenue Telecom TBD. say I'd still been of we've there is and than delivering. backlog still and X% Tim, less is

But anything obviously in up closely. not significant news it's our any So this of we're that's any conversations in it's but it's nothing come with so to customers, come watching the in that's point. our up way it

Tim Thein

there if into that or TES areas backlog it early and abated. of 'XX, care given and cost on given I'm other don't of you business, growth terms the curious And with extends, the look but discussions just Okay. significance as is your you too inflationary presumably I into appreciate the of as relates how lack relative kind basically a -- new and much. gross bleeds in how around I how of guys, long pressures it cost that the uncertainty how are is to suppliers those I just the the the question approaching the an backdrop? you to extend that I you're these to still profit keeping pricing what just would imagine continues decisions the in imagine making you backlog that But have you're price uncertain and sure in terms backlog of and approaching would orders

Ryan McMonagle

obviously see increase ability using talking that few them. that costs closely We're and that customers. to price to and right. and a suppliers with significant the as our we're to understanding we're so that in the come backlog the you're when But a reprice -- to estimates customers see have need our through calls it we going back Yes, of price I we we significant with so communicating we terms best when still working so we we're through, ago can appropriately. But think mentioned we

closely. we're something aware it's very to of we'll and So continue manage

Operator

This over ahead. question-and-answer remarks. for concludes McMonagle back any to the go the I Ryan session. would Please to like turn closing conference

Ryan McMonagle

today your with don't next time call. in Thanks, in please meantime, Thank to everyone, Custom look And on reach our speaking questions. with Thank to and out earnings for the quarterly you any hesitate Truck. you forward interest you. again. your We

Operator

This call. concludes conference today's

you You disconnect Thank lines. pleasant may for your participating and have day. a

Custom Truck One Source (CTOS) 8 Aug 232023 Q2 Earnings call transcript